9th Circuit Denies Rehearing in Bauman v. DaimlerChrysler

9th Circuit Denies Rehearing in Bauman v. DaimlerChrysler

Finding Personal Jurisdiction by Imputation and Watering Down "Agency" Test for Finding Jurisdiction, Say 8th Circuit Judges Who Would Grant Rehearing En Banc

By Louis M. Solomon

Bauman, et al. v. DaimlerChrysler, et al., No. 07-15386 (9th Cir. 18 May 2011) [enhanced version available to lexis.com subscribers ], involves claims by 22 Argentinian residents against DaimlerChrysler Aktiengesellschaft (DCAG) and its Argentinian subsidiary alleging that Mercedes Benz (owned by DaimlerChrysler) collaborated with Argentine state security forces to kidnap, detain, torture, and kill plaintiffs and/or their family members during Argentina's "Dirty War" in the late 1970s (when the military overthrew President Isabel Peron).  The claims were asserted under the Alien Tort Statute (ATS), 28 U.S.C. § 1350 [enhanced version  ], though the significant aspects of the decision relate to personal jurisdiction, and the rulings in that regard are not limited to the ATS but will have applicability broadly to international litigation of all kinds. 

When we posted on Bauman, et al. v. DaimlerChrysler Corp. et al., last spring, we pointed out that the Ninth Circuit taught that, even in the absence of a finding of specific personal jurisdiction arising from specific acts done in connection with the specific cause of action under review, personal jurisdiction over the German parent DCAG by reason of the contacts in the U.S. of its subsidiary Mercedes-Benz USA (MBUSA) could arise in one of two ways:  either through the alter "ego test" of through the "agency" test.  

Readers of this blog might recall our four-part treatment (the most recent of which is here) of the related issue that we described as the principal-agency conundrum for securing jurisdiction in the U.S.  The Ninth Circuit articulated the "special importance" of the services performed by the subsidiary - that is, if the parent did not have a subsidiary in the U.S., "the corporation's own officials would undertake to perform substantially similar services" (quoting earlier Circuit authority).  The Court of Appeals also asked a second question as well, that is, whether there existed "an element of control, albeit not as much control as is required to satisfy the 'alter ego' test".    The Circuit found this two-part test satisfied by reason of the importance to Mercedes Benz of the U.S. subsidiary's business.

In the earlier panel decision, the Circuit also examined the "extent of conflict with the sovereignty of the defendant's state", even though not dispositive.  Quoting the Supreme Court's decision in Asahi Metal Indus. v. Superior Court, 480 U.S. 102 (1987) [enhanced version  ] ("[g]reat care and reserve should be exercised when extending our notions of personal jurisdiction into the international field"), the Ninth Circuit concluded that personal jurisdiction over the non-U.S. parent was nonetheless proper given that nearly 50% of DCAG's overall revenue comes from the U.S., "and sales of DCAG vehicles in the United States accounted for 1% of this country's GDP".  The Court of Appeals so found despite misgivings expressed by courts in Germany.  It found, finally, that DCAG did not meet "its burden of presenting a compelling case that the exercise of jurisdiction would not comport with fair play and substantial justice".

In the decision just issued, Bauman, et al. v. DaimlerChrysler Corp., et al. (denial of rehearing en banc), No. 07-15386 (9th Cir. Nov. 2011) [enhanced version  ], the Court of Appeals voted unanimously to deny the petition for rehearing.  The petition also sought rehearing by the entire Ninth Circuit.  This too was denied, but eight judges dissented from that denial in an opinion that merits review for the international litigation issues that we have raised.

The opinion dissenting from the denial of en banc review does not mince words.  It begins:

Our court today extends the reach of general personal jurisdiction far beyond its breaking point. Its holding, that federal courts have personal jurisdiction over a German corporation for its Argentinian subsidiary's alleged activities in Argentina based simply on having a separate U.S.-based subsidiary, is an affront to due process.

In addition to arguing that the panel's decision is contrary to U.S. Supreme Court jurisprudence, the dissenting opinion focuses on the fact that the panel decision "seemingly rejects respect for corporate separateness, a well-established 'principle of corporate law deeply ingrained in our economic and legal systems'".  The dissenters also argue that the panel holding "is an affront to international comity and threatens the ability of the Executive Branch to execute its foreign affairs duties" and "may also have unpredictable effects on foreign policy and international comity". 

We will follow the next phase of this litigation.

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